Annexure -I
LIC HOUSING FINANCE LTD.
Interest Rate Model
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Interest Rate Model
1. Preamble:
As per the Master Direction - Non-Banking Financial Company – Housing Finance Company
(Reserve Bank) Directions, 2021 dated February 17, and updated from time to time, the board of
each HFC shall adopt an interest rate model taking into account relevant factors such as cost of
funds, margin and risk premium and determine the rate of interest to be charged for loans and
advances. The rate of interest and the approach for gradations of risk and rationale for charging
different rate of interest to different categories of borrowers shall be disclosed to the borrower or
customer in the application form and communicated explicitly in the sanction letter.
The rates of interest and the approach for gradation of risks, shall be made available on the
website of company or published in the relevant newspaper. The information published on the
website or otherwise published shall be updated whenever there is change in the rates of Interest.
2. Objective:
The objective of the Model is to standardize the methodology used to charge interest rates, for
different category of customers segment and to arrive at the final rates charged from the
customers.
3. Approach to gradation of risk & Interest Rate Model
The interest rate charged to customer for loan product shall be benchmarked to PLR of the
Company. The PLR shall be arrived at based on the weighted average cost of funds, operating
cost, administrative costs, credit losses, margin, etc. PLR of the company shall be monitored
periodically by the Asset Liability Management Committee (ALCO) of the Company. Any
change in PLR shall be approved/ratified by the Executive Committee of the Company:
The company shall have different PLR for different categories of loans as follows:
1. Retail Housing Loan Prime Lending Rate (LHPLR)
2. Retail Non-Housing Loan Prime Lending Rate (LHPLRNH)
3. Non-Retail Prime Lending Rate (LHPLR Non-Retail)
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4. Interest Rate Model
Pricing is essentially a function of risk, loan type, borrower type and prevailing market trend. As
far as fund-based exposure is concerned, pricing has two components, viz., benchmark rate i.e.
PLR of the company and spread.
The rate of interest charged to our customers shall be linked to PLR of the Company. The rate of
interest for loans for various business segments and various schemes thereunder shall be arrived
after adjusting for spread. The spread would vary depending on the risk profile of the customer,
credit history of the borrowers, asset type, scheme, etc. The spread for different categories of
borrowers for Retail loans shall be decided by Product and Pricing Committee formed by MD
& CEO of the Company, within Financial Powers. The spread under Retail loans where loan
amount is beyond the Financial Powers of Product and Pricing Committee & the spread under
Non-Retail loans shall be decided by Sanction Authority/ various Internal
Committees/Executive Committee of the board.
Factors taken into account for deciding spreads linked to PLR are as follows:
Credit Bureau Score
Credit and default risk in the related business segment
Historical performance of similar clients
Profile of the borrower (Salaried/ Professional/Self Employed)
Property type (Residential/ Non-Residential)
Product type (Housing/ Non-Housing)
Ticket size of loan
Creditworthiness of Borrower
Loan term
Loan to value (LTV)
Security
Pricing offered by competitors and other relevant factors.
The rate of interest for the same product availed during the same period by different customers
may vary depending upon consideration of all or a combination of the above factors.
The decision to offer a fixed or floating interest rate loan by the organisation, will inter alia
depend on the nature of the product being offered, market conditions, client requirement etc.
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4. Communication of Interest Rate/ Charges:
Interest rates/ other charges would be intimated by the Company to the customers at the time of
sanction of the loan. The Interest Rate Model along with the rate of Interest charged to the
customers shall be uploaded on the website of the Company and shall be updated as and when
there are changes in the rates. Further, changes in the rates for the existing customers shall also
be communicated through appropriate channel (Email/SMS).
Interest changes would be prospective in effect and intimation of change of interest or other
charges would be communicated to customers in a manner deemed fit, as per terms of the Loan
Agreement/Sanction letter.
5. Review and Amendments:
This Model is subject to Annual review by the Board, to ensure its continued relevance and
effectiveness. Any necessary amendments shall be made to maintain alignment with changing
business practices and regulatory requirements.
MD & CEO may be authorized to approve the necessary amendments in the Loan documents
and to issue necessary operational guidelines for the purpose of implementation of this Model.
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